Thirty U.S. states have legalized cannabis in some form, and Canada is poised to become the first industrialized nation to legalize recreational use this summer. Worldwide sentiment about cannabis has changed, and it no longer has as much of the stigma as it has in the past.
This is a good sign for business owners, more of whom are entering the cannabis market. It is also a good sign for investors; as they see cannabis businesses cropping up all over the country, many investors want a piece of the pie in this rapidly growing industry.
Is there money to be made? Yes, and you have many options. Some investors are understandably leery, particularly since cannabis is still a Schedule I drug in America. But other investors have taken the plunge and are making cannabis their newest portfolio addition by investing either directly or indirectly in the growing industry.
Cannabis stocks are not the next get-rich-quick opportunity. While the industry is growing, stocks aren’t growing quite as much. Because cannabis remains illegal on a federal level, there is limited financial help available for new businesses. You won’t make an immediate profit, but these opportunities are great for long-term investment.
But how do you invest? And what do you invest in? Here are some great ways.
It’s a pretty safe bet to invest in companies that make medical cannabis products. Most states in the U.S. have legalized some level of medical cannabis use, and in Canada, it’s been legal for 20 years. While some of the big players are on the major American and Canadian stock exchanges, the majority of these companies are found on the over-the-counter exchanges (OTC).
Invest In Canada
Canadian cannabis companies are growing like gangbusters. For instance, OrganiGram (OGRMF) is one of the biggest Canadian producers and growers of medical marijuana, and their business is exponentially expanding as the number of Canadians using medical cannabis is growing rapidly. In particular, Organigram’s sales have skyrocketed due to their production of cannabis oil products like CBD oils.
Another popular Canadian company is Canopy Growth Corporation (TWMJF), researcher and producer of cannabis. The company is valued at over $4 billion and has the advantage of financing courtesy of the Bank of Montreal. Canopy’s competitor, Aurora (ACBFF) just purchased their competitor, CanniMed Therapeutics, and is rapidly expanding their growing facilities. Cronos Group Inc. (NASDAQ: CRON) is also growing and expanding internationally; some investors have been drawn to the volatile stock. Two other Canadian companies, MedReLeaf (MEDFF) and Aphria (APHQF) are worth a look for your portfolio. Indeed many American investors do seek out these Canadian stocks.
Invest In Recreational Cannabis
Only a handful of U.S. states have approved recreational marijuana, but the American public has given its highest approval rating yet. Investors should be savvy, though, because not every cannabis stock will necessarily show a profit. Certainly, more demand is expected as other states legalize recreational use, but these companies will have to dole out more cash to keep up with demand. There are many forward-looking companies that have been preparing for the expansion of legalized marijuana, like Scott's Miracle-Gro (SMG). Over the years, the company has acquired multiple cannabis-related companies, like General Hydroponics, and Sunlight Supply.
MedMen Enterprises isn’t publicly traded yet, but they want to be. MedMen has dispensaries in several states and they are a highly successful retailer of cannabis products. They plan to go public soon but haven’t exactly announced yet how that will take place.
Think About An Exchange-Traded Fund
Cannabis exchange-traded funds (ETF) are increasingly popular for investors wanting to add cannabis stocks to their portfolios. An ETF allows investors to trade several different securities under one fund umbrella. ETFs are very new, and some banks are wary given the ever-present cannabis Schedule I classification. Use caution with ETFs, but they’re definitely worth looking at. One example is the Horizons ETF cannabis fund, Horizons Marijuana Life Sciences ETF (HMMJ), which trades Aurora, Canopy Growth, and other cannabis companies. The Alternative Harvest ETF (MJ) focuses exclusively on cannabis stocks, and the very new Evolve Marijuana ETF (TSX: SEED) trades on the Toronto Stock Exchange and is almost entirely comprised of Canadian stocks. The downside is that should Canada suffer an economic crisis, all your ETFs will crash at the same time.
Have A Look At Hemp
Perhaps you’re an investor wanting to invest in cannabis production, so in that case, have a look at hemp. The company Hemp Inc. (HEMP) has been around for more than a decade as a “one-stop shop for hemp production”--they grow it, process the fibers, extract from it and sell products made from it.
Marijuana and industrial hemp are basically the same plants. Both are cannabis sativa, except hemp is legal while cannabis is not. Federal law defines hemp as a cannabis sativa plant with THC under 0.3 percent. Cannabis sativa plants with higher THC are considered marijuana, banned on a federal level as a Schedule I substance on the DEA’s Controlled Substances Act list. Since 2014, American farmers have been able to legally grow industrial hemp, thanks to the 2014 Farm Bill. Furthermore, America has always been able to import industrial hemp from other countries to use its fibers and other plant parts to make soap, fiber products, ``and other things.
Hemp recently got another boost from Senate Majority Leader Mitch McConnell (R-Kentucky) who introduced a bill to legalize industrial hemp on a federal level. What does the bill passage mean to companies like Hemp, Inc? Since they’re already working in the industry, they will likely have an advantage over the competition when it comes to expanding operations.
Indirect Cannabis Stocks
If investing in a pure cannabis stock makes you nervous, perhaps try a stock where cannabis is just part of the company operations, or where the company is indirectly involved in the industry. One example is Abbvie Inc. (NYSE:ABBV) a general pharmaceutical company that happened to market the first FDA-approved synthetic cannabis drug, Marinol, an anti-nausea drug for cancer and AIDS patients. Or, try INSYS Therapeutics, (INSY) another pharma company with DEA approval for a synthetic cannabis drug. You can also invest in companies like Kush Bottles (KSHB), a solid, fast-growing packaging supply company that provides cannabis sellers with bottles, packages, and other supplies.
As with any stock, each has its own risk. While cannabis stocks are typically more volatile than the average stock because of the federal government’s current status, the cannabis world is changing. How do you think the cannabis industry will evolve? Will the U.S. deschedule the drug? Or will the federal government hold firm and keep cannabis’ illegal status. Ultimately, your opinion about how you think the cannabis industry will evolve will drive your decision whether to invest.